Tesla's Attempt to Revolutionize the Auto Industry May Have Hit a Road Block in Texas

As they try to carve out a permanent niche in the ultra-competitive American car market, Tesla and billionaire founder Elon Musk have had to position themselves as sprightly Davids disrupting the lumbering Goliaths of Detroit and Japan.

They have no other choice. They can't afford the untold billions legacy automakers pour into engineering, R&D, manufacturing, marketing and distribution, and they don't have the scale to churn out millions of cars. To gain so much as a foothold, they have to fundamentally rethink the car business.

Musk was in Austin on Tuesday, where he testified in favor of proposed legislation that would help Tesla do that. Right now, Texas law requires that automakers sell their cars through licensed dealerships. HB 3351 and its companion, SB 1659, would let U.S.-based electric car makers sell directly to consumers.

The legislation is actually a bit more specific than that, limiting this ability to manufacturers who make only electric cars and have operated operated a dealership in the United States as of March 1, 2013. In other words: Tesla.

"For us this is life or death," Musk told the House Committee on Business and Industry, according to the Austin Business Journal. "If we can't go direct we will not be able to sell cars."

As mentioned, Tesla is small. It makes about 20,000 cars per year and thus would seem to pose little threat to the state's car dealerships, which sell about 1.3 million gas vehicles each year.

The dealerships don't feel that way. The Texas Auto Dealers Association is lobbying against the bill on the grounds that it would be unwise for the Legislature to change the law to benefit a single company, even one as undeniably cool as Tesla.

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Don;t really care one way or the other as this is way out of my price range, but if you buy direct from Tesla and there are no dealerships; how is maintenance/warranty service done? There are Lamborghini dealerships, and Ferrari dealerships, and Bentley dealerships, and Maserati dealerships. Maybe Mr Musk has a flawed business model.

There are many of examples of protectionist governmental policies in Texas that unnecessarily restrict free enterprise at the expense of consumers, all in the name of protecting favored lobbies. This won't go anywhere, nor will any other such reform. Because Texas conservatives don't believe in free enterprise, they believe in greenbacks from supporters. Some of the industries that have middle-men injected solely for the benefit of the middle-man (who bought the legislation at issue):

Hmmm. This is the last state I would've thought to create a push back for Tesla. Not only have I heard Texas is the land of the business friendly, but Elon has a pretty good stake already in Texas with SpaceX. (Spaceport in Brownsville anyone?) I wonder how much he's willing to play hardball with these Luddite car dealership associations.

@Sotiredofitall
I appreciate your point of view and I understand why many people are
not aware of the reason for this business model. Tesla contends that
dealers would be more motivated to sell internal combustion vehicles
over electric vehicles because they represent a higher volume of their
sales and, therefore, this direct sales model is the best way to advance
adoption of electric vehicles. Tesla may be on to something because any
time an electric vehicle has been sold through dealers who also sell
internal combustion vehicles, the electric vehicle has failed to reach a
high adoption rate.

To address your question about service,
Tesla builds service centers at various sites throughout the country in
order to provide repair support. Tesla also deploys their "Tesla
Rangers" to come to you to provide maintenance or roadside assistance.
Another perk recently announced by Elon Musk is that Tesla owners having
their cars in for repair would be able to get a loaner top-of-the-line
Performance Edition of the Model S brought to them while their car is
being serviced.

@Sotiredofitall Does it matter how service and warranties are done? If you are worried about that, then don't buy a Tesla. I suppose creating a business that competes with an industry that has more or less bought every single politician in the state could be considered a "flaw" but I'm more inclined to call the blatant corruption and protectionism the true flaw that screws us all.

@mavdog Given the high profile of this bill any conservatives who vote against it could be setting themselves up to be run over by Tea Partiers in the next election. It might get further than you think.

@cantkeepthetruthdown It should not be voted down - it should just be expanded to let everyone sell direct. That proposal would be dead in the water though. The dealers know that they've very effectively lobbied to insulate their business from competition and have no intention of letting it loosen for anyone.

@drtz@mavdog "high profile"? It's a bill to create an exception for a single California-based, eco-friendly, car manufacturer that might sell 3,000 to 5,000 cars a year in Texas if the bill passes. And the cars it sells are designed to put the largest industry in the state out of business. I don't see the tea party getting fired up about this one.

@cantkeepthetruthdown@anon That's not true. Opening up a dealership is much, much more than just leasing out space and building a showroom. Once you open a dealership, you can almost never close it. State laws (the kind lobbied for by the dealers) severely limit the ability to do so. Why do you think it took a bankruptcy for GM and Chrysler to close a massive number of unprofitable dealerships? The companies may have been poorly managed but they knew long before the bankruptcy that they had far too many dealerships relative to their unit sales. There simply was no way to force the dealers to close down. There are a host of justifications for the laws (none valid, in my opinion), but the bottom line is that they make it incredibly difficult to close a dealership if it no longer makes sense for the car manufacturer.